1. What are closing costs?

Closing costs, or settlement costs, are expenses typically incurred by the buyer over and above the purchase price of the property. Closing costs normally include title insurance, loan points, escrow or closing day charges, property taxes, and document fees

2. Who pays the closing costs?

The buyer typically pays the closing costs in a real estate transaction, although this point is subject to private negotiation.

3. How much money should I set aside for closing costs?

Closing costs typically average between two and five percent of a property's purchase price. You can get a better idea of how much you should set aside for closing costs, however, by obtaining a good faith estimate of settlement costs from your mortgage lender.

4. What is a good faith estimate of settlement costs and how do I get one?

When you apply for a mortgage loan, your lender is required to give you a written list of the estimated settlement costs, or closing costs, associated with the mortgage transaction. This list is known as a good faith estimate of settlement costs. The closing costs reported in the good faith estimate will include the lender's charges along with the local closing agent's fees. The good faith estimate will also include the projected costs of property taxes, title insurance, and homeowner's insurance, among other things.

5. What types of things are included in a good faith estimate of settlement costs?

Here's a list of some of the fees you'll find listed in your good faith estimate:
  • Credit report fee
  • Property appraisal fee
  • Inspection fee
  • Title search and title insurance fees
  • Document recording and survey fees
  • Transfer taxes
  • Property taxes
  • Loan application fee
  • Loan points and loan origination fee
  • Attorney's fees (yours and your lender's)
  • Escrow account balances
  • Document preparation fees
For a list of average prices for these fees, please click here. (http://www.bankrate.com/brm/news/real-estate/buyerguide2004/closing-estimate.asp)

6. How can I save money on closing costs?

As mentioned earlier, closing costs are expensive. Closing costs will typically average between two and five percent of the total purchase price of the property. But here are a few ways you can save:
  • Secure a no-fee loan or a no-point loan. These loans typically have higher interest rates, but they can significantly reduce your closing costs.
  • Negotiate with the seller to have him or her pay part or all of the closing costs.
  • Consult with a number of different mortgage lenders to find the best deal for you in terms of price and structure. The good faith estimate that all lenders are required to provide comes in a standard form that lends itself to comparison shopping. Keep in mind, however, that the good faith estimate by itself is not the best way to compare loan packages. You will also need to consider other loan fees, and, more importantly, the mortgage interest rate attached to the loan. Additionally, it is important to remember that a good faith estimate is only an estimate and that the actual fees associated with the closing may vary.
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